Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the "Small Builder" borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and "Ground up Construction Loans" for investors only in NC, SC, GA, VA and TN (some areas of FL, as well). As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
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Bill Fairman (00:09):
Hi everyone! Bill Fairman, Carolina Capital Management. I'm
here with Wendy Sweet and Jonathan Davis. So what we're going to talk about
quickly is, what's going on in the market. And how it's affecting us and
everyone else around it. And this thing is changing hourly.
Wendy Sweet (00:28):
Right! On the real estate side, right.
Bill Fairman (00:29):
If not daily.
Wendy Sweet (00:30):
Yeah, yeah. Minute by minute. That's just, it's crazy,
right?
Bill Fairman (00:34):
Absolutely. So there's a lot of panic going on. First
thing that we're doing is we're keeping our social distance apparently. We were
all scrubbed down before we get really close together. We had our Purell wipes
for all of our tables, chairs and microphone. Right off the top, I heard on the
way in that the stock market has lost all the gains in it. It's gotten in the
last three years.
Jonathan Davis (01:05):
Yeah. That's, that's insane!
Bill Fairman (01:07):
Within a couple of days.
Wendy Sweet (01:08):
Glad I'm not in it.
Jonathan Davis (01:10):
Yeah. I'm glad that, you know, for those who, you know,
it's not your only investment. I'm glad that you diversified. For sure.
Wendy Sweet (01:16):
That's why you should diversify. Right?
Bill Fairman (01:18):
But if you're looking at single companies, the essential
industries, where are the stocks going up? Costco. Was it BJ's?
Wendy Sweet (01:30):
Kleenex? Toilet paper.
Bill Fairman (01:33):
Amazon is going up a bit because a lot of people are
ordering online. You know, your healthcare stocks are actually going up.
Wendy Sweet (01:39):
Maybe the conspiracy is, Amazon caused all of this!
Bill Fairman (01:43):
Your pharmaceutical stocks are going up. All of those,
what they figure is, essential industries. And by the way, another essential
industry is housing. Because while people need food, they also need shelter.
Wendy Sweet (01:58):
That's right. That's right. And in this business, that's
where we're providing. Right?
Jonathan Davis (02:03):
Affordable Housing. Yes!
Bill Fairman (02:05):
So, anyway, and I'm not beating our chest.
Wendy Sweet (02:10):
But he's beating his chest.
Bill Fairman (02:12):
We took the conservative approach last year when we
changed our model. We knew, and you know, we're involved in several high level
masterminds. And, you know, we're, we're meeting with people from all over the
country that are in the same industry that we're in. And there was a poll taken
and each one of these is how many people felt like, you know, in their markets,
was there more on the upside of the real estate market or more to the downside
at that point. And the vast majority said that they're at or close to the peak.
Wendy Sweet (02:50):
Right. And we've been, we've been preparing for this Black
Swan event. Or any Black Swan events. Something that we can't control. So, you
know, even with freedom founders, that were a member of that mastermind. We did
a stress test in January. Thank you Lord! And really got a handle on, you know,
what we would need to do if something like this happened. We were already
sitting in a good position and now we're even, we're even stronger there.
Bill Fairman (03:19):
But that was business wise. That's running a small
business. On our investment side of things, we turn the ship last January and
we're only going to be focused on the residential affordable housing. And what
do we mean by that? Our average loan size now is 158,000.
Wendy Sweet (03:39):
Yeah. And it'll be even lower for 2020.
Bill Fairman (03:42):
So really what we're focused on lending is two places. We
still do multifamily, but again, it's going to be in the affordable housing
side of things. When we do make the larger loans into the multifamily, we are
doing participations with other lenders so we don't have to carry the whole
load. So in most cases we're only going to be in it for 30% or less, wouldn't
you say?
Jonathan Davis (04:07):
Yeah, I would say you know, between 30% and 50% but yeah,
most of them are around 30 or less. Yeah.
Bill Fairman (04:15):
And then on the single family side, now we have those
loans a 100% but it's the old adage, I'd rather have, you know, five $100,000
loans than one $500,000 loan. Well, while the work is a lot, lot more on our
side because now we have to do five loans. You know, the defensive mechanism is
there is that, you know, if one goes bad, we still have four that are working.
Wendy Sweet (04:41):
Right, right. So, and then, the interest of time, cause we
really only have 10 minutes to go on this and I just wanted to make sure that
we talk about some of the things that we're seeing as of today. You know, we
have, one particular lender that we were sending a lot of loans to and there's
10 loans in our pipeline that we can't do. And those are the long term buy and
hold property stuff that these lenders aren't doing because they were lending
from institutional money or wall street money and those stop. Yeah. Tell us a
little bit about that. What do you see going on there?
Jonathan Davis (05:13):
I mean, we see it, we see a lot of national lenders,
national aggregators taking the pause button, you know, taking the wait and see
approach...
Wendy Sweet (05:20):
Which is making the interest rates go up a little bit.
Jonathan Davis (05:25):
And you see a little bit of, I wouldn't, freeze is too
hard or too strong of a word, but a slow down in, in the secondary market
sales, which is just buying and selling of originated loans.
Wendy Sweet (05:38):
Loans that are already in place.
Jonathan Davis (05:39):
So you're seeing that slow down. You know, one of the
things that, you know, I think we were careful to position ourselves was to not
be reliant on one or a couple national lenders or lines of credit. We have no,
you know, we don't leverage our fund. We don't do any of that.
Wendy Sweet (06:00):
We had lots of people courting us, but we didn't do it.
And I'm so glad that we didn't, right?
Jonathan Davis (06:05):
Because you know, the example, I was talking with someone
earlier is they always question, well you can, why wouldn't you want to tenex
your business utilizing our capital?
Wendy Sweet (06:15):
Feed that machine!
Jonathan Davis (06:16):
You know, cause you know, to tenex a business, you have to
add employees, you have to add all this infrastructure, you have to add all
these things. And my question for them now is, those people who tenex their
company utilizing their capital, that is now on pause, right? What does that do
to them right now?
Wendy Sweet (06:31):
They're dead in the water. That is dead in the water.
Bill Fairman (06:34):
So on the borrower side of things, you're looking at it,
this way if you're buying portfolios or individual homes that you're going to
hold long term, you are probably going to have a lower leveraged amount.
Meaning you're going to have to bring more money to the table.
Wendy Sweet (06:57):
Right! You're not going to be getting those 80%, 90%
loans.
Bill Fairman (07:00):
Yeah. You're going to have a lower loan to value. And they're
going to want to see that you have, based on the number of properties that you
have already, they want to make sure that you have the reserves because they
know there's going to be bumps in the road. With everything shutting down and
people have a hard time making their payments. Are you going to be able to make
their payments while your tenant are not.
Jonathan Davis (07:19):
And speaking of tenants, you know, one of the things that
I did this morning was I emailed my property manager on the properties that I
own. And my question was, every property, what is the occupation of all those
tenants?
Wendy Sweet (07:35):
It's a great question. It's a great question.
Jonathan Davis (07:37):
Because you know...
Wendy Sweet (07:39):
They work for a hotel? Are they a bartender?
Jonathan Davis (07:42):
Am I going to be expecting no payments? I mean, what's,
what's the expectation? And to know that like, is reassuring for me cause yeah,
I wouldn't, I don't want to just not get a payment. I want to kind of know that
in advance. Prepare for it. So if you all have properties, know that. If you
have property managers, ask them that.
Wendy Sweet (07:59):
That's right. And you know, I'm a big Airbnb fan. I have
several of them that are all sitting there empty right now. And you know, I
thank God that, you know, I have the wherewithal to make those payments and
keep them going. You know, I'm going to drop my nightly rate down to $50 a night
and just see, you know, what I can get booked. But you know, we get a lot of
sporting events, all the weddings. Those are the reasons why people we're
traveling. And all of it was canceled. And I mean, I've, I literally spent all
last week just with 5, 6, 10 cancellations every day. And, and it's
disheartening, but I know that this too shall pass.
Bill Fairman (08:44):
Yeah. It's short term. Now, at the same time I'm thinking
if you have long term tenants and you're a section eight landlord, you're in,
Wendy Sweet (08:53):
You're in good shape! And a great time to love section
eight stuff. Right?
Jonathan Davis (08:57):
I'm in the process of rehabbing some properties to make
them section eight, I mean I wish they were already done, but...
Wendy Sweet (09:04):
That's right. And then that's a good, it's a good reason
to do that. It's also a great opportunity to be picking up houses right now
because there's a lot of people backing out because these, these smaller
lenders that are, that are, you know, somebody might have a hundred thousand
dollars or $200,000 in a self directed IRA. They're lending that money out on
their own to a lot of different investors. Those people aren't lending, they're
hoarding their cash. So now they're calling us. Yup. So,
Bill Fairman (09:32):
Well, not to mention the institutional lenders are cutting
back a little too. So they're getting it from all sides.
Wendy Sweet (09:38):
That's right. And then we've got other companies like, you
know, some insurance companies that were seven step to that saying, Hey, load
us up. We've got money, we're putting it out there. So,
Jonathan Davis (09:47):
And those are backed by premiums, not by institution. That's
right. Very different. Different underwriting box.
Bill Fairman (09:54):
And what happens is, on the hedge fund side of things,
people are wanting their cash back. So they have to give them their money.
Right? And then on the more conservative insurance place, that's where they're
putting their money and now they have all this extra capital they have to put
to work.
Wendy Sweet (10:11):
That's right. So this is where the tortoise and the hare
are in a race and we've been the tortoise, we're not sexy, we're vanilla.
There's nothing exciting about what we do. We're very conservative. And at this
point that's the place to be. Right?
Bill Fairman (10:23):
Yeah. And I want to say one last thing before we end this.
It's been a long time since the last downturn. There's plenty of people that
have completely forgotten what had happened. And the people that get hurt the
most were the ones that were over leveraged. There's nothing wrong with debt during
this time. Especially long term fixed with low interest rates, you know what
your payments are going to be. Your biggest issue is can you survive a few
months without having payments and all your properties, not just one or two of
them. Okay. But if you're way over leveraged, there's not a lot of room for
maneuvering there and that's where you're going to get hurt, right?
Jonathan Davis (11:06):
There might be opportunity, in I guess people or, or LLCs
or whatever they are that have bought a lot of rental properties or properties
in general. Who wouldn't say they're over leveraged but they are asset rich and
cash poor right now you can probably pick up some good prices on some rental
units just because people are uncertain about, will my rent be paid? And if my
rent isn't paid, that's, that's my income when I live off of, that's what I pay
my debt with. Right? Like, so they're going to be looking perhaps to be
gathering some cash and quickly,
Bill Fairman (11:46):
I am going to say this might be a good time also to
explore, owner financed properties.
Jonathan Davis (11:52):
That's another great point! Yeah.
Bill Fairman (11:53):
They may want to cash out and you can offer them a lower
price.
Wendy Sweet (11:59):
That's a great point!
Bill Fairman (12:00):
Well, thank you.
Wendy Sweet (12:01):
If you already have seller, plus one, so if you already
have seller financing and place it's be a great time to cash them out. And get
a discount and run that, that's a, that is a really, really well said there
bro.
Bill Fairman (12:13):
We've reached our limit, so we'll be back soon. Don't
forget CarolinaHardMoney.com is our website. If you want any further
information. It's magical.
Wendy Sweet (12:25):
Yeah, were special.
Bill Fairman (12:27):
Anyway,
New Speaker (12:30):
Exactly where its going to be.
New Speaker (12:30):
We'll see you soon!
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